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Watch BofA CEO Moynihan on Earnings, New Bank Rules, Mideast (Video) - Bloomberg

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00:00David Westin joining us right now for our Wall Street Week Daily segment. And he's sitting down right now with the chairman and CEO of Bank of America for a Bloomberg television and radio watchers all around the world. We welcome now Brian Moynihan. He is the chair and CEO of Bank of America. Brian, thanks so much for joining us. We just said you beat across the board. You surprised everybody across the board. Congratulations on that. But let me ask about what comes next, because I notice that you gave a bit of guidance into 2024. Recently, you've been doing a quarter by quarter. Do you feel like you have a little more visibility into the future than you have in the past? Yeah. Yes. David, thank you. So the team did a great job this quarter, $7.8 billion earnings year to date, $23 billion plus in earnings, a return on tangible common equity of 50% this quarter. Market share growth and a bunch of business organic growth around the company. But what gives us confidence to think you're talking mostly about now in terms of future guidance, If you think about it, where we see we've said we do 14.2 billion in the third quarter this year we did 14.5 billion. We said we'd hold at 14 billion for the fourth quarter. And what we told people is as you look forward, given the rate curve, the forward rate curve, what's going to happen rates, we see that 14 billion plus or minus bouncing along for a couple of quarters and starting to grow from that. Why is that happen? We've seen our deposit base in the in the commercial businesses start to grow again after six quarters of basically being flat. We see it the wealth management business in the last few months, basically running steady at about 395 billion. And we've seen the consumer business, if more spend down the accounts on some of the core side, but overall outperforming the market and that's a very valuable base with $500 billion of checking in it. So that says that $1.9 trillion of pods, we have a good the loans flat this quarter, but good growth on consumer, which frankly has more yield to it. So we expect that. And as that comes together, we'd expect to see any sort of pick up in the second half of the year. And that coupled with the expense discipline we have, is a good path forward. Brian talked about that deposit base, which is so important for net interest income. You had it, I think it was like 200,000 new checking accounts and a million in credit cards, really in one credit card. Where are those coming from? Are you taking market share from someplace or just more people coming to the market? How where are they coming from? But we we do really well with young conservatives in American business, but we do really well with young Americans. And so we keep adding a higher percentage of accounts for young people. And so it just it comes from America. And so it is a taking market share. These are primary checking accounts in a household, 92% plus average balance, about 10,000 in them. So it's a very strong checking base. And that account growth of 900,000 for the last four quarters, a million in the four quarters before that, those numbers are net growing to 37 million Americans use our company for their core consumer checking business. And that's a great but great group of customers, high customer satisfaction, high employee satisfaction, that area, it all works and it produces a $980 billion posits and consumer. Brian in the past you've talked about the non-interest bearing accounts, the deposits you have that you don't have to really pay interest on. I wonder about that. You seem to be doing a bit better than your competition does. Do you have some pressure? Because as you see those rates go up, you must have some people, at least on the margin, saying, you know what, I can get some interest someplace. And they did. And that's why our deposits have moved down. So if you think about our wealth management business, they probably peaked at 50, 60 billion higher. And a lot of that money move to the market. And I heard in the last segment you our customers at Merrill Lynch are holding the highest amount of cash that Treasuries and things that they've held up three or $400 billion over the last couple of years. And that money is waiting to come back in the market when things stabilize. So in that business happened in the commercial business. You saw that go out and then you saw it build back. And that's starting to grow again. At the $500 billion left in the consumer. The higher the consumers that have investment cash, cash that they don't need to conduct their day to day operations. They have moved that into the into the higher yielding savings accounts or even in the market. And so if you look at the upper levels of deposits, average deposit balances in 50,000, 60,000 and above, those are actually down from the pre-pandemic. And the reason why is that money went in the market. It didn't disappear. They just moved it to other things. The core transaction base is coming in and out. The paycheck comes in every two weeks or every week or every month. It goes through, pays all the bills and then comes in again. That that is really hard to position because my position and my bills go through and I don't have the cash an account. So it's a different business and it's a business which we do for companies and wealthy people and consumers. But it's a big consumer business for us and it continues to grow and grow well. So Brian, you have such a vantage point into the consumers across the country, and you said that that you're starting to see that slow some as we go into the new year. Do you have expectations through the end of the year into 2024? Will it continue to slow? So let's think about two or three things here. One is just what are the consumers doing with the money they have in their accounts? And in a given year, we will have $4 trillion that will be spent by our consumers on debit card, credit card purchases, Zelle payments, checks, written money of ATMs and all the different forms they spend it. That 4000000000021 to 22 grew at 9% year to date. For the first four or five months of the year. I would have been telling you in the second quarter, it's still growing strong at like 8%. It's now down to 4 to 5% in the year to date in about four, four and a half percent in the month of September and in the month of October. Consistent with that, the consumer has been slowing down their spending because interest rates take a toll, because as rates went up on their floating rate loans, their home equity loans or other things afloat credit cards or frankly, new car purchases, the rates are higher. There are mortgages getting done. Those rates are higher. That slows down there to restarted student loans. All those slow down their ability to spend other things have to shift spending around. And on top of that, frankly, they're looking ahead say, hey, I hear things are going to be bounced around a little bit. I'll spend a little less. And then the third thing is they take it, you know, they bought the goods they bought during COVID. They thought, you know, the new couch and stuff. They don't need to buy another one now. They've taken the trips and now they're back into the core activity. And so as you put all that together, it's slowing by half. And what is spending rate at the year over year growth is consistent with 2% inflation and below 2% GDP growth. It is the same at that rate of 4% or so is what we had in 17, 18 and 19 as the economy kind of ended into an equilibrium. So frankly, the Fed has won the battle of the American consumer and they're slowing down. And the question is, what happens next? You can't predict. But this this is a $4 trillion base, 3 to $400 billion a month. So think about it. It's hard to move around a lot. So once it slows this level, it's probably not going to kick right back up. So, Brian, how much of a vantage point do you have into where the the consumer, the household stands? Because there was a lot of talk about essentially excess savings come out of the pandemic because a lot of the checks were being written to individuals and the dry powder, if you will, and drawing down it. Do you have a sense of how much has been drawn down? And a second question is, to what extent is real wage increase maybe replacing some of that? Well, that's that's the thing. So if you look look, inflation is tough, especially on median income households in terms of goods and services are higher. Part of goods are harder. Part of what they buy. Groceries are bigger. Number of gas prices are big A number. And it's very difficult. And that's what the pressure you see in some of the consumer sentiment. That's one issue. But if you look at it in a broad aggregate sense, what you see with this kind of spending rate is a concern. It's healthy. If you look in the accounts, especially in accounts, median income, 75,000 under the head, average balances before the pandemic, they're still multiples, but they're trickling down. And so the rumors that they would be spent down by this Christmas of 22 is what people are saying. Last year there could be overspent, didn't happen and it was going to happen By early this year it didn't happen, but it's going to have by the fall This year didn't happen. And now it's starting to happen slowly. And but at this rate, it'll still be many more months. The thing about that is, you pointed out, is for the first couple of years after the pandemic, the wages rose quickly and then inflation caught up. And if you look at multi years, it's more in sync. Recently, it's upside down in the wage growth has slowed down as employers have been more conservative and the the great resignation has gone out of the system. So you're kind of at an equilibrium across multiple years right now. You feel more upside down. And then by income strata, it's a little different. And that will then slow the consumer down. And that's what we're seeing from what you've seen. Are you anticipating more delinquencies of defaults as we get into 2024 on the consumer side? We we have seen the you know, the early stage delinquencies and consumer are below where they were in 19. And the problem with saying that is we say their normalize 19. Everything is, oh, my gosh, the reality is 2019, I think was like a 40 year low in delinquencies and charge offs in our company's history. So we're we're normalizing to a level that is very low. The consumer is still very strong. The delinquency in charge, off rates in the card business and in the mortgage business, we have no charge offs. Home equity recoveries, its auto business, we're a prime lender. We have a billion, $1,000,000,000,000 of loans, and we continue to drive that growth. But we've always been a prime lender to consumers, a side that's half our portfolio and the commercial side, we're a very good commercial lender. So whether it's wherever it is, the consumer is in very good shape in terms of because they're employed and earn the money. And so our delinquencies are normalizing because of the pandemic. They went really low. And there's all the special programs and student loan deferrals and all that went on. They're normalized, but they're normalizing into place is still very low. And so the charge offs continue to come up a little bit. But to a number that we used to charge off every quarter that nobody asked about, I think it was great results. Brian, we've talked about the consumer and deposits. Let's talk about the global markets business that you have because you also had some very reassuring, encouraging numbers and things like trading on things like investment banking. A few years ago you and I talked and you expressed some dissatisfaction thinking that you needed to do more in that area, maybe grow your balance sheet some, take some risks. Where are you in that process? Is there more still to come for Bank of America in investing in that business? Well, our former colleague Tom Montag, four or five years ago said we need to grow this business. We got it in great shape. Let's do it. He's retired. Jamie Dimon took over the business and started running it a few years, three or four years ago. And he's basically taken that investment strategy and delivered on it. And so they had one of the best quarters they've had. They consistently up about 25% versus pre-pandemic year average. They're doing it the right way, made money every trading day, a lot more stable revenues and financing and things like that that help in the equities business said it at a at 1.6 billion. You know, for a long time it was 1,000,000,000 billion, 1,000,000,002. And now it's fundamentally moved to a different level. Good performance on the fixed income business, rounding out the capabilities that Jim and the team have done a great job and they delivered and they keep working their self up the ladder in market share, you know, quarter after quarter after quarter, because this business is not easy and a lot of people are quitting it, a lot of people are reshaping it. But for those of us that have this worldwide platform, it's well managed. It is a chance to continue to grow and we'll continue to dedicate resources to it. Well, and then on the investment banking side. Yeah, I'm sorry, David, on investment banking side, because you mentioned that Matthew Cota runs that business for us and we were basically flattish in the market. That was down 20%. Two or three is about one of the teams doing a great job of serving the clients well. But secondly, we're playing off our advantages, whether it's what we call e GRC, middle market investment banking or whether some of our industry groups that are just doing a great job. You know, Matthew has been able to hold share even though the market is down and a pipeline is full. And we you know, we think that you could see that transact. Just before I got on, there was another transaction in the market that I heard your colleague speaking about. So activity is starting to take place. It is not where it was before the market started, the rate start to rise and stuff, but if it gets anywhere back that you'll see us go from this $1.1 billion level quickly up to 1.5, 1.6, and we'll see where it goes from there. And the team does a good job. And importantly in that business, remember, we have corporate lending in GTA, so global transactions serve as a cash management so called and it's revenues were up 15, 20% year over year and it just drove the profit of the business to pre-tax pre-provision profit. So Brian, you took us exactly where we want to go, which was investment banking, particularly middle market, because you said that that's an area you think you can continue to grow. And I wonder as you look to possibly grow that maybe invest is part of that looking for mid-level and senior people who might bring in laterals, I would call them. We will do that. But frankly, what we did is we we took bets. You took about 100 people out of 9100 people out of the industry led investment banking into the middle market. The team has done a great job over there. So he might get in over there. And I said earlier, that's like, say, 190, 200 so they could go to 400. There's a lot of capacity to grow there. And one day, Stuart, who has that middle market client base of tens of thousands of customers and overnight has the 50 million under revenue companies, they have a lot of capacity to use. And just this quarter, we had a $50 million increase among that middle market customer base increase and it'll be 25 30% of all the investment banking revenues in the business. And so it's a very strong area for us, but we can grow without it. We'll hire people outside if we need them. But the reality is, and we always do that, but the reality is we have a lot of teammates we could redeploy as certain areas are slow. We redeployed those teammates to areas that we knew we could grow. And by the way, it's a major investment business to do it. We have not done layoffs and things like that and our company generally and not investment bank. And we just have reposition of people and send them after clients that we think we can be successful with. Brian One of the changes that looks like it's coming to your business is increased reserve requirements. There's a proposal out there, comments coming in and I wonder what your views on that and specifically assuming they go through in something like the form we're seeing right now, how much would it change your business, how you do your banking? Well, so let's start a couple of things. One is the rules were proposed. There's a comment period of close end in November. And you've seen in the market and you've seen in the press, Steve, obviously the industry's got a lot of comments coming. Our trade associations are individual companies. A lot of things we think should be changed for the good of the American economy. That's one thing. The second thing is the American banking system has tremendous capital and capabilities, as you see in the stress tests and all the way we've tested that in the real world, in a stress world. And our company FAIR has been in a stress test and then appears to. So that's that's the backdrop. What it really means, though, if you take the rules as proposed today without any modification and or what we call optimization, our risk weighted assets today are 1.63 trillion, you'd have about an increase of 20% to 1.95 trillion. Eventually enough at the end of the third quarter are. T one common equity tier one capital. What counts as the numerator in this case is 194 billion, and our requirement beginning next January is 10%. So 10% times 1 to 1.95 trillion 195 billion. So we actually have the capital in the company, number one. Number two, we're actually earning a 15% return on return on tangible common equity on that capital day. So we would have to build a little buffer of maybe 10 billion more. But but frankly, the team does a great job of the capital. Is is this capital needed? I would say wasn't needed yesterday. I don't know why it's needed tomorrow. Do we have time to phase into it? Yes. If the rules get adopt, it'll be a three year phase in the current rule. Maybe we'll see what comes at it. Will it be changed? I hope so. But the reality is, from a Bank America perspective, it's not like we need to retain extra capital or do other things to get there because we have the capital in the company today. So the great work of the team, if something goes through like what we've seen so far, understanding it may be modified through the comment period. Would it affect your competitiveness? And if so, with whom is it with banks overseas? Is it with non-banks? How might it hinder your competitiveness in the marketplace? So they're they're all of the above. But let's let's think about that that the in the US relative to European banks and others, if you look at bank our size in Europe, you look at the largest bank in all the countries they have what we call an RWA intensity, i.e. the RWA risk weighted assets, percentage of total assets is about half ours. And so for half the capital they get a higher capital ratio. That seems counterintuitive because they do the same business as we do as our company does, especially with mid-market lending, consumer banking, wealth management and capital markets and large corporate banking. So that seems odd. That means it's it's uncompetitive for the banks. So people say, well, what do we really care about that? Yeah, so what, we have more capital. That means we're safe and sound. What that really means, though, is a mid-sized company in Europe who is a supplier to the auto businesses in Europe and and will be able to supply in Europe and around the world with a lower cost of borrowing because you can make the same return on half the capital by charging less interest. If you come over to the US, you have you have two companies making bumpers for cars. You're going to find out that the cost of borrowing in the US is higher. That means the cars that middle market company supplies, that materials may not be as competitive. That's what we've got to be careful of. So a lot of people would say it is a competitive think it's about ourselves or or my peers. And the other big banks know this is about the ability to lend downstream. And that's what we're saying is a competitive risk. Then you take the point you made about us vis a vis the non-bank. Half of all the asset classes of banks lend against mortgages, credit cards, commercial, but are outside the banking system. And so if you keep raising capital requirements, what you do is push the activity out. And as you push that activity out, you can't regulate it and see it. So, yeah, well, people are worried about commercial real estate. What you're hearing a lot about lenders, quote, take it back. The keys are not in the banking system. They're outside the banking system because that business is half outside the banking system. That's not altogether good. It's not a bad thing to be able to distribute that risk, which we've always done it, but you've got to be careful about it. If it goes too far, then you have unregulated participants outside the industry carrying out a lot of activity. And if that doesn't isn't handled right, it impacts the broader economy and it can't touch it. So that's a second way to think about competitiveness. Be mindful that you've been there ten years now running Bank of America and you've always had as a hallmark, responsible growth. Explain the growth from here on out from your point of view. Where does that come from? Where do you devote resources? Maybe take some resources away from some other part of the equation to drive the next phase of growth for Bank of America? Look at the end of the day. It's been 14 years, David. Time flies and we're having fun. But the we started the response growth about a decade ago, and that was about making sure after the financial crisis and all the retooling had to be done, that we focused on growth. And responsible growth means you got to grow, no excuses. You got to do it the right way with risk, client focus, and you've got to be sustainable. It's got to be growth that can stick to the ribs. That's what we do. And so as we look forward, the growth is going to come from more clients and more done with each client. So this today, if you look at our earnings materials, we talked about 11,000, 11,000 new net, new clients in the wealth manager business or 1100 new commercial clients more than we did all last year. Or we we talk about the 10,000 referrals that went out of the private bank to other parts of the company. All these different statistics are all about driving that. Now where do we have great opportunity? Think about our merchant business. We bought a piece in a few years ago, took a charge to bring it in, restructured the business and now we're out selling and sales are up 20%. Think about our and K and other retirement businesses. We're number six in a business. We can grow that. Think about our cheap jets cash major business just infinitely scalable across the globe. Lot to do internationally on that we we do a lot already we can do it more. And then think you know so if you think about all these different products we have places we're number six in the core businesses we're one, two or three. That doesn't mean they can't grow. That means if you look at our consumer business, which is largest retail consumer business in the country, it's still growing year over year, 10% more investment accounts, another million checking accounts, which is 3% growth in a big, huge book. And that just plays and comes right across. We have less branches, less people, less technology, but very valuable teammates. When customers need that source, but use that digital drive it. And so we have lots of room for growth in every area, even that middle market investment bank I talked about earlier. Again, 25, 30% of the activity could be 50 60% of the activity and help us grow. We can see the clients. We can see what could do. We just got to get after Brian. Finally, a couple of broader questions here. We're all mindful of what's going on right now in the Middle East with Israel and Hamas, and that's after Ukraine. There was a lot of geopolitical conflict around the world. Does that affect your business at Bank of America? How do you internalize that? How do you adjust to that, if at all? Well, we we have teammates in Israel. We had an office and the teammates talked to us on the phone today to a group of senior leaders. And so the first thing we do is have to make sure our teammates are safe and and more broadly, across our 2000 teammates, other teammates have relatives and family that were that were hurt in the initial attack. And so it's a tough situation, but that's where we always go first, stabilize, make sure our teammates are getting all the support they can have. Then we do work with humanitarian organization to provide broader relief. But if you think about it more from the volatility in the markets and more from the you know, look, you've got, you know, wars on two places go. And now these are all this as the volatility and as the movement in the markets and as a day to day movement. But these are, you know, huge human crises going on that we we hope solve. We aren't sure they will. But you have to run the company given that we've got to be ready for anything comes out as a geopolitical risk is a major risk for the company faces on a given day. And as you say so correctly, it's first and foremost a humanitarian tragedy, really a horror going on. This is not so much I'm monitoring tragic, but what's going on in Washington right now? Same question. Is it affecting you? Because we're looking at the prospect of possibly a government shutdown again in November and they seem to have some dysfunction. That's a political issue. That's not your job. But could it affect the economy? Could it affect Bank of America? But the government running smoothly is sort of an assumed outcome. You know, in the United States and anything it gets in a way that is not is not a good thing. And so the ebbs and flows of the needs for funding and operations shutting down are threaten to show that. Now that's good and everybody knows that. And that's why they keep trying to figure out ways to move it down the road and have the political argument they want to have about the policies embedded in those budgets, which are, you know, that's what that's what they're there for. They're supposed to have those arguments. But you want the rest of the bank, the rest of the operation. So you got millions of federal employees are affected by it. So we approach the government shutdown, the many that have occurred over time that we've been around because we've been around since 1784. So this is not a new concept for us, but we've approach it the same way you approach any other disaster. First, the employees of the government, we waive fees and payments and everything to make sure they're fine, and then we basically then try to work to ensure that we have the risk covered. We have to worry about, you know, impact on markets. And so we analyze that. We get ready for it, and we have teams are ready to go at any given moment. If you know anything, it's anything. It has nine states not be the most stable place on earth is just not a good thing. And so, yeah, but you have to divorce the real political process away from the operations, which we just need the government to be paying its bills and functioning. And they can have the argument over size of budgets and everything. That's what that's what they're supposed to do. But we need to make sure that we don't have an accident on the other side. And that's the thing we've got to be careful of. Well, when you mentioned stability, I really am mindful what's been going on with actually yields in the bond market, which has been pretty volatile recently for all sorts of the reasons that you identified, including geopolitical. Is that something that we should be concerned about, the degree of volatility in the bond market? You know, you've had guests talking about it in a day to day moves. You know, if you don't like it today, look tomorrow. So what is like the statement about the doing of either because it was 480, almost five, then down to 460 and it back up to 480 and up today. So it bounces around. But that's just the ebb and flows of people in the market trying to figure out, you know, the data trading. Longer term, you know, the Fed is going to hold rates higher for longer. What our team kind of planned, the team with the great research team believe that the cuts they have in their models are two next two or three next year and for the year after. So that's 175 basis points off of the level is now still above four. That is higher for longer and that's what the markets suggest before you can have a real rate curve than anybody under the age of 40. Something wasn't around pre for the global financial crisis when the rate structure was higher. A 3% Fed funds rate is more normal than what we went through from 2010 to 2019. It never got up to that level. And in fact, at the end of 19, if you remember, the Fed started cutting rates to push the economy. So they're mindful of the impact. But the idea is to have inflation at target as opposed to longing for it, which is what many Fed governors had, many Fed chairs had to do, and many central bankers, although they kept saying, Oh, if only we had inflation, now you have it, now you've got to manage it down, but you've got to be careful. You don't overshoot. And that's the challenge. So the rates reflect the geopolitical reflect their view of the rate curve. They're clear about where they're going. I think they're more done than not. Everybody thinks that. But even when they talk about higher for longer, it means a rate curve coming down to support the normalization of growth, and that's consumer spending. We see that says maybe this is coming down faster. And I think.

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